South-North Migration and Trade: A Survey

Can trade liberalization be used to deter South-North immigration? Is trade a substitute for migration? Not necessarily. Assuming that migration generates externalities, the South should liberalize trade, while the North should impose an (optimal) immigration tax. Before 1973, the labor market in Europe was tight and immigration from the South (chiefly North Africa and Southern Europe) was encouraged. But with the slowdown in growth in the mid-1970s, the rise in unemployment, and increased economic uncertainty, immigration came to be viewed as a burden by the destination countries. The demand for migration fell, but the supply did not. As US and EU opposition to immigration has increased, some have proposed using trade policy to deal with immigration - for example, opening their markets to exports from countries in the South and East in the hope that countries that export more goods will export fewer people. The assumption in such proposals is that trade liberalization will reduce migration - that trade is a substitute for migration. Using both one-sector and two-sector models, Schiff examines the relationship between trade and migration, as well as the welfare implications of different trade and migration policies for both sending and receiving countries. The results are ambiguous. Is trade a substitute for migration? Opening markets in the North and providing foreign investment and foreign aid to the sending countries is more likely to slow down migration from Eastern Europe to the European Union than from Africa to the European Union or from Latin America to the United States. It may also worsen the skill composition of migration from Africa to the European Union and from Latin America to the United States. Assuming migration externalities are not internalized, all groups are worse off under free migration than they are when migration is rest...